President and Founder of AT&T Theodore Vail was a proponent of creating a single natural monopoly in telephony services. AT&T withstood its first antitrust suit in 1913, U.S. v. Western Electric, by establishing the "Kingsbury Commitment." AT&T's Vice-President Nathan Kinsbury wrote a letter to the Attorney General conceding AT&T would stop acquiring independents and provide interconnection to its network for independent carriers. By doing this, AT&T was able to drop the antitrust suit and thus continue acquiring independents. The passage of the Willis-Graham Act in 1921 in Congress reinforced government's partiality to creating a regulated monopoly system. The Act granted mergers among competing telcos to enable the "unification" of service provision.

These early problems illustrated inadequacies in supply and distribution problem under a system of free entry that are traditionally the impetus for regulation. However, whether or not this stemmed from competition or simply from an early lack of interconnection between providers and networks is debatable. Some revisionists would argue that "universal service" was provided by "competition and independent construction, not subsidies, that brought the telephone to rural America."[2] Nevertheless, government regulators moved ahead in 1910 to favor AT&T as the sole provider of telephony services, thus creating a monopoly market structure.

Under the 1934 legislation, AT&T was essentially granted immunity from antitrust suits with the goal of providing universal service. At the same time, it was also prohibited from telco-broadcast cross-ownership. This, along with the Willis-Graham Act, effectively gave license for AT&T to complete its acquisition of independent phone companies and ultimately build its empire of Bell operating companies (BOCs).

Not only did AT&T maintain a monopoly in voice service, but also maintained monopoly control of the long distance network and all consumer-attached telephone equipment such as phones and wires. AT&T thrived on this vertically integrated monopoly structure for decades before it became a legal and regulatory obstacle for competitors who wished to provide the non-Bell equipment to customers.

Recurrent antitrust suits initiated by the FCC and Justice Department made clear the policy (and political) struggle between protecting AT&T's monopoly structure and its growing market dominance. By the mid to late 1960s, AT&Ts monopoly system became an impediment to (1) competitive entry, (2) providing efficient services to meet growing demands and (3) technology innovation. Various exogenous forces including the increasing pressure of outside competition, inflation, and a growth in demand made manifest the regressive performance of AT&T's monopoly system. The legal battles AT&T fought throughout the 60s culminated in its last antitrust suit in 1974, when the DOJ alleged AT&T was using its monopoly structure to engage in predatory behavior through its exclusive dealing practices and its interconnection charges priced well above costs.

On the other hand, the MFJ permitted AT&T's entry into the flourishing computing industry in exchange for divesting itself of its local telephone companies. In many ways, this was in the best interest of AT&T, whose voice-only natural monopoly clearly evinced weaknesses in service and efficiency long before divestiture. Entrance into the computing industry offered AT&T an opportunity for technological innovation, where its regulated monopoly in telephony eventually stifled development. AT&T maintained its manufacturing and research line of business after the MFJ as the RBOCs continued to rely upon AT&T for the purchase of switching equipment. The fact that AT&T was able to keep Western Electric and the Bell Labs raises the question of how effectively divestiture was in breaking AT&T's vertically integrated monopoly. Last year, AT&T spun off its manufacturing/research into a separate entity called Lucent Technologies so that it could re-focus its efforts on local and long distance services now permitted under the Telecommunications Act of 1996.